PIP COURTNEY, PRESENTER: We hear a lot about the huge potential of China. But for many exporters, it remains just that: potential. Not so for some of the nation’s orange growers, where there’s been a huge surge in exports to China. It’s welcome relief after years in which a high dollar has made citrus exporting a very tough business. Chris Clark has more.

CHRIS CLARK, REPORTER: This is the peak time for navel oranges, and for the first time in years, the sweet fruit is complemented by a welcome whiff of optimism.

For a couple of decades, the best navel oranges from Australia found a secure and profitable market in the United States. A persistently high dollar and competition out of South America gradually eroded that position. It’s taking time, but mainland China is emerging as a serious alternative.

TANIA CHAPMAN, CITRUS AUSTRALIA: From, you know, 17,000 kilos in 2011, to two million kilos last year and this year we’re well on the way to who knows what? We’ve already got 238 containers that have arrived in China, 20 more that are on the water.

CHRIS CLARK: And few doubt that plenty of growth remains.

NATHAN HANCOCK, CITRUS AUSTRALIA: Most of the exporters we speak to say as long as we play within the rules and we make sure the protocols are being met, the sky’s the limit, really. There’s a lot of potential there, just in the markets we’re addressing, but there’s a whole lot of mainland China that we’re not getting into it yet.

CHRIS CLARK: Australian citrus has long been going to China through Hong Kong; that’s what’s known as the “grey channel”. But to export directly to the mainland is a much more complicated business.

Tony Filippi works for the citrus packing house that dominates mainland exports to China.

TONY FILIPPI, MILDURA FRUIT COMPANY: With these markets that we’re sending to, they’re becoming more and more conscious of pests that enter their shores, just like pests entering our shores. So it’s something that we need to comply with and that’s just a fact of life.

CHRIS CLARK: In the case of navel oranges, that means Fuller’s rose weevil, a common enough problem in citrus worldwide, but a pest which the Chinese say they don’t have and don’t want.

TONY FILIPPI: The thing with Fuller’s rose weevil, it’s a minor pest, really, in the citrus. It doesn’t cause any blemish to the citrus fruit itself. But what it does do is it leaves a remnant behind. Now that remnant is eggs that they will lay under the calyx of the fruit.

CHRIS CLARK: So if they see the residue left over from Fuller’s rose weevil, they can reject an export shipment?

TONY FILIPPI: Exactly right. And that’s a very expensive exercise.

CHRIS CLARK: There are rules growers have to follow if they want their fruit to be considered for the mainland Chinese market. Fuller’s rose weevil spends part of its life cycle in the ground, so the trick is to stop it climbing the trees where it can then lay its eggs.

TONY FILIPPI: Got an orchard here where the grower does have Fuller’s rose weevil, so he has implemented all the practices that are required to minimise the risk of having Fuller’s rose weevil enter the calyx of a fruit. So what he’s got here is – he’s taken the canopy of the tree right up off the ground, there’s no weeds. So the only way that this pest – because it’s flightless, has to walk up the trunk. So as you can see there’s a clear barrier that’s been put on to the trunk …

CHRIS CLARK: A chemical barrier.

TONY FILIPPI: Chemical barrier that’s been sprayed onto the trunk at critical times and it’s potent enough to keep the weevil out of the tree.

CHRIS CLARK: Meeting the Fuller’s rose weevil rules costs growers money and Australia’s best export navel oranges are already expensive compared to much of the competition. But the Chinese market will pay for top-quality fruit. So Tony Filippi says growers have to concentrate on growing the best fruit they can if they want to be part of the trade.

TONY FILIPPI: I s’pose what we need to do is for the growers to consider the type of fruit that they grow on the top of the trees. They need to make sure that the fruit is of high quality and of the right sizes because then they will deliver the returns and easily justify the investment that they’ve made underneath the tree.

CHRIS CLARK: The story of Australian citrus is not just a story about China. Even during the last several tough years, people have been investing, in the belief that the dollar would fall, that new markets would emerge. One such is Greg McMahon, one of the partners in Seven Fields, who we met up with a couple of years ago on Landline when citrus was perhaps at its lowest ebb, but when Asian markets were already showing some promise.

These are the opportunities which make Greg McMahon optimistic. Optimistic enough to spend millions installing his own packing line in this shed.

Greg McMahon’s fairly new to the citrus industry, and along with his business partners, he shares a vision about how to succeed.

GREG MCMAHON, PARTNER, SEVEN FIELDS (Sept. 2011): Our orchards are at a stage now, Chris, where we need to consider our packing requirements for the future. And we think by building our own line and running it ourselves, it’s just another area in our business where we can reduce our cost of production. And if we can get our cost of production down, that’ll increase the return. And even in the environment of a high dollar, we think we can succeed over the long term with that sort of strategy.

CHRIS CLARK: Scroll forward and that vision of a new packing shed has been realised.

GREG MCMAHON: So with this facility here, what we’ve tried to do is lower the cost of the production because Australia doesn’t have a competitive advantage in the cost of producing the citrus, whether it’s in the field, in the picking and here in the packing and also the shipping. So we’ve tried to lower that cost as much as possible by automating a fair part of the line. And we’ve done it at a time, I guess, when the Australian dollar was high, so that this equipment has been imported largely from Europe and it’s been a good time, I guess, to do that. So it’s a counter-cyclical investment. It was risky, but we think in the long term it’ll pay off.

CHRIS CLARK: It’s not just about lowering costs. They’re trying to make sure quality is as good as it can be, to make sure that what goes out the door is in the best possible shape.

GREG MCMAHON: Here in this line, what we’ve really tried to do is play to the competitive advantage of Australian citrus. So there’s actually three quality checks that the fruit goes through before a customer receives it in a box. And then one of the things we’ve been careful to do is make sure that immediately before it goes into a box, it gets looked at for that third quality check. So rather than bringing it in from the field, putting it in a box straightaway and then perhaps leaving that box for a couple of weeks before it goes to the customer, we’re leaving the packing – the final packing into the box as the very last thing before it gets put in the container or put on a truck to go to the customer.

CHRIS CLARK: Apart from investing in technology, Greg McMahon’s also taken another punt. Seven Fields has a strong emphasis on mandarins. And recently, mandarins have been outselling oranges in the supermarkets.

The mandarin has really become the favourite citrus in Australia, hasn’t it?

GREG MCMAHON: It has, yeah. It’s really taken over from the oranges and especially the last two, three years.

CHRIS CLARK: Why do you think that is?

GREG MCMAHON: I think it’s people’s desire for a convenient, flavourful piece of fruit that they can eat on the run. Like a lot of packaged foods have moved that way, so too is citrus.

CHRIS CLARK: Seven Fields is just one of several producers who’ve invested heavily in plantings of the Afourer mandarin variety.

So what are you looking for in the Afourer? What are the characteristics of the finished fruit?

GREG MCMAHON: We’re looking for a beautiful burnt orange colour, like this, and then that’s probably about the perfect size for the domestic market here and most markets around the world. In this particular farm we’re able to achieve a seedless standard because of the isolation. So you’ll find almost all of the fruit in here will have that beautiful juice content, the flavour is excellent, it’s very high sugar, and early in the season it has some acid which allows us to export it long distances, but then that settles out and gives a beautiful balanced flavour that’s appealing to just about everywhere in the world. This variety was founded in Morocco. The conditions are very similar – sandy soil, beautiful draining, really cold nights to get the colour.

CHRIS CLARK: Which helps you get the colour?

GREG MCMAHON: Beautiful colour. And it also has warm days which helps you build the sugar in the fruit as well.

CHRIS CLARK: The Northern Hemisphere grows and eats much more citrus than the south. So the opportunity for Australia is still exporting counter-seasonal fruit to the north and that means keeping up with the citrus varieties the rest of the world wants to eat, the Afourer mandarin being a case in point.

GREG MCMAHON: They are the most popular mandarin in the world, when you take into account the Northern Hemisphere. It’s a lot newer here in the south, the Southern Hemisphere and particularly in Australia, but the South Americans are growing it in large and growing numbers, the South Africans are growing it in large and growing numbers. We’ve come to the party a little bit late. But it gave us the confidence when we’re watching this fruit being eaten and demanded in other parts of the world, that it will take off here, and it has and it will. And I think the growth – there’s still plenty of growth left in the domestic market as well as these other export markets.

CHRIS CLARK: Planting new varieties of citrus is a big commercial risk and a long-term project. Pacific Fresh at Leeton in the Riverina is a grower-owned packing company. Frank Mercuri is the chairman.

More than a decade ago, they went looking for a new variety in Japan. They settled on this unusual-looking fruit, the Dekopon, now marketed in Australia as the Sumo.

FRANK MERCURI, CHAIRMAN, PACIFIC FRESH: It’s got a little top knot on the top. Some people just break it off like that.

CHRIS CLARK: It’s a big piece of fruit, but it’s still a mandarin, it’s not an orange.

They’re a more delicate and costly fruit to pick than some other varieties and they’ve had to put a new packing line in to handle them.

FRANK MERCURI: It’s taken us 12 years up till now, but we started production two years ago. There’s a lot of work in multiplying the budwood, takes a lot of time. You gotta keep going, do more trees, more trees to get more budwood. It’s a costly exercise. It’s cost a fair bit of money to do all that, but hopefully it’ll pay off in the end.

CHRIS CLARK: There’s plenty of scope yet in the domestic market, but eventually they’ll try to export them.

It’s a similar story for Greg McMahon and his Afourer mandarins.

Now you really backed the Arfourer variety, you planted very heavily in that, and that’s obviously doing well here. You see a lot of export potential in it as well.

GREG MCMAHON: We do. It’s a fantastic piece of fruit to export because its properties make it very good travelling fruit, so that it keeps well, it ends up in export destinations, particularly Europe, which is 42 days away on the water, it turns up in beautiful condition as if we just packed it here.

CHRIS CLARK: But shelf life is only one aspect of exporting. Arguably the biggest obstacles are the import rules that vary from country to country.

So back to Fuller’s rose weevil. Australian growers who want to export to mainland China have to spend money trimming their trees to meet Chinese rules, but some other Southern Hemisphere competitors, Chile and South Africa, don’t have to do that. They’ve been able to negotiate more relaxed rules with the Chinese.

Growers here were hoping government-to-government free trade agreements with China, Japan and Korea would be settled by now and that the rules on citrus might be easier, but no deals have been struck.

So Frank Mercuri can’t send Sumos back to Japan yet.

FRANK MERCURI: They’d love to get the fruit there right now, but protocols are stopping us from getting it in Japan just yet. We’d love to ’cause we know there’s a lotta money to be made there, ’cause I’ve heard ’em selling up to $10 per each there.

GREG MCMAHON: We read in the newspaper about our industry perhaps being caught up in the motor vehicle industry tariff issues – “Give me this and I’ll give you that.” And I really don’t understand to what extent that comes into play. For us in the citrus industry, there’s probably only one example that I know of where there is a bit of tit for tat and that’s – we would love to get mandarins into Korea. Korea grows a lot of mandarins. They’d love to get them into Australia. Now, we won’t take them because they have all sorts of – they have different issues and disease problems that we have here in Australia that we don’t want, understandably.

CHRIS CLARK: So again, Fuller’s rose weevil, the bug the Chinese are so fussy about. Instead of waiting for a free trade agreement with China which might relax the rules on Fuller’s rose weevil, the industry decided it’d have to show growers how to meet the standards.

TANIA CHAPMAN: Four years ago, we had no hope of getting in the front door of China. So, looking at Fuller’s rose weevil being the biggest barrier, we went through that whole process of how can we actually get in the front door, ’cause China has an amazing potential. So by putting together this orchard systems management approach, it’s actually allowing us to demonstrate reliable trade with good clean fruit.

CHRIS CLARK: Export volumes might also be helped by the fact that the main exporter to China, the Mildura Fruit Company, is majority owned by Chinese interests, specifically, the Shanghai Municipal Government. So, instead of putting all our citrus exports in the free trade basket, Tania Chapman, who chairs the industry group Citrus Australia, says it’s time to think about encouraging more and deeper investment to develop the industry.

TANIA CHAPMAN: We’ve actually been looking at maybe we should be developing mini ag agreements so that we can start to really improve the protocols which would then assist in things like such as Fuller’s rose weevil. The largest packhouse in Australia, Mildura Fruit Company, is owned 75 per cent by the Chinese, but they don’t own any trees, any orchards, so maybe there’s a way that we can look at that vertical integration. But the other thing that the Chinese are very interested in is our knowledge and our growing skills. So they’re some things that we can offer in our mini trade is we can give you the skills to assist you in growing your product, and that has a two-fold benefit. One, as I said, it allows us to then have better access into their country. But we’re also making sure that we then bring back the knowledge of what those consumers want in that marketplace, which then helps our growers make decisions about what varieties they should be putting in the ground.

CHRIS CLARK: Growers are always on the lookout for the next big thing in citrus. If you can establish a new variety and maintain breeders’ rights, the returns can be big. Frank Mercuri’s hoping this might be it: a navel orange with a brownish tinge, bred from a natural mutation. If it works, it’ll be an early maturing navel variety.

FRANK MERCURI: The fruit is really, really sweet. Now this fruit should’ve been harvested, say, middle of May till middle of June, and it’s a lot sweeter than any other citrus navel around at that tim

CHRIS CLARK: From just one branch on one tree, they’re now ready to take it to the next stage

FRANK MERCURI: Now we’ve got about 7,000 trees ready to go for plantation this spring. We’ve had a lot of interest from all over the world. We’ve had a lot of countries, growers, come here to visit this tree. They all want to get their hands on it, but not just yet.

CHRIS CLARK: And what do you call a brown oranges.

FRANK MERCURI: Brown skin. We think we might be able to call it a king brown, I think.

CHRIS CLARK: The long lead times and high costs make citrus growers a pretty cautious bunch, but there are clear consumer trends emerging worldwide.

CITRUS GROWER: I think the consumer will eventually ask for fruit that has no seeds. It’s a similar story to what happened with table grapes; they very rarely can buy seeded grapes anymore. It’s just a trend that’s moving on and the industry has to follow.

CHRIS CLARK: These citrus growers are running the ruler over some varieties being trialled by New South Wales DPI’s Graeme Sanderson.

The Sumo and the king brown are both up for the taste test and it’s clear a brown orange is going to test the marketing department.

CITRUS GROWER II: Best piece of fruit I’ve tried today.

CHRIS CLARK: But after some pretty tough years, there’s a feeling Australia’s citrus industry might just be on the way up again.